Three software company founders must cough up $5.8m to settle insider-trading charges brought by the US Securities and Exchange Commission (SEC).
The watchdog claimed Lawson Software’s co-chairman Herbert Lawson took advantage of inaccurate media speculation and analyst reports about merger discussions with Infor Global Solutions to make a bit of money on the markets.
In 2011, reporters and analysts reckoned Lawson Software was for sale and that multiple bidders were interested in the company. Herbert Lawson tipped off his brother William and family friend John Cerullo that the speculation was wrong – and that a lone bidder was secretly offering a share price way below what was reported, the SEC said.
Armed with the inside information, William Lawson sold more than a million of his family’s shares in the company and tipped off another trader as well, we're told. Cerullo also sold about 175,000 stocks, all while the incorrect merger chatter was driving prices up, the commission said.
Once it got out that Lawson Software had agreed to a merger with Infor Global Solutions for a lower-than-anticipated share price, the company’s stocks dropped 8.7 per cent. By selling up before that news went public, the traders pocketed $2m in profit, said SEC.
“Richard Lawson conveyed material information that was contrary to what was being publicly reported, and his brother and friend made a windfall when they subsequently sold their company shares at inflated prices,” said Stephen Cohen, an associate director in the SEC’s Division of Enforcement. "When news surfaces about the possibility of a merger and details of the media reports are incorrect, it is illegal for insiders who know the true facts to trade and profit.”
According to the commission’s court filings [PDF], Lawson Software was founded in 1975 by all three charged men. William Lawson and Cerullo retired in 2001, but Richard Lawson was still co-chair of the board when the company started to consider selling up. After Lawson and Infor Global entered a non-disclosure agreement and started meeting to discuss the possible merger, the board members were regularly informed of the discussions.
Infor and Lawson were already in talks when the firm’s financial advisor reached out to other competitors to see if they were interested in acquiring it. There was little to no interest, but a media article in March 2011 reported that Lawson was asking around for a buyer and then named a few firms that might be interested in a potential sale.
The article fuelled widespread speculation that there were a number of buyers lining up to bid on the firm. Even after Lawson announced that it had an offer from Infor, there were still rumours that other bidders would materialise, causing shares to rise around 23 per cent from the first report.
The SEC alleges Richard Lawson knew the reports were wrong because he’d been told by the financial advisors that the companies in question had said they weren’t interested. He also knew that the board was likely to go for Infor’s bid.
He has agreed to settle the charges out of court with a penalty of $1.56m for tipping his brother and Cerullo off, the same amount of money the pair made on their trades, and he’s also been barred from serving as an officer or director of a company.
Cerullo will pay a total of $372,603 for his part in the scheme and William Lawson has agreed to cough up $3.87m, which includes the value of the ill-gotten gains of the other trader he tipped off. ®